What are the key provisions of shareholders agreement?

Posted by Enterslice India on September 24th, 2018

Investors or shareholders are usually considered as the genuine proprietors of the organization. An agreement which is obtained between the organization and the shareholders depicting the rights and commitments is known as the Shareholder's Agreement. You can get more details about such kinds of agreements and can get help from professionals to get it done in an appropriate way through the reliable and trustworthy organization such as ours. We at Enterslice are having reliable and highly skilled professionals who are 24/7 hr available to help you.

For What Reason Do We Require a Shareholder's Agreement

In order to avoid any dispute between the shareholders and the company, this agreement is being signed. As we know that nothing can be ensured for the future, anything could go wrong and in such cases, agreements play a vital role in handling the disputes by maintaining a healthy relationship among the shareholders and the company. It additionally ensures the speculation made by the shareholder and sets out the guidelines and controls for the investors and any other party which is involved with the organization. It is, therefore, necessary to draft a shareholder’s agreement, in light of the fact, that, not all the shareholders are the same and everyone has different opinions on the matter concerned. They may or may not get agree with each other.

Key Provisions of Shareholder’s Agreement

There are basic provisions upon which a shareholder’s agreement is drafted, that are as follows:-

• The proportion in which the shareholder is going to hold their shares,
• Rules regarding the transferring of shares,
• Will, there be a different class for the different category of shareholders such as minority, majority or founder shareholders,
• Board of the director could stop the issuance of the share or the transfer of shares?
• Does the existing shareholder get the privilege of getting those shares first, if there is the new issue of shares in the market?

How Does The Consent of Shareholders Matters?

There are few circumstances and situations where the consent of the shareholder’s matters that are mentioned below:-

• While dissolving the company,
• While drafting a financial statement or distributing the dividend,
• While filing for bankruptcy, or entering into amalgamation,
• While there is a need for the amendment of the articles of association in the company,
• When a manager or any member is appointed or dismissed.

There is a consent clause in the shareholders agreement where it is mentioned that any shareholder may impose any breach of terms and conditions by any member of the company.

What Are The Restrictions Against Transfer?

A Shareholders agreement consist of some rules and regulations where it is stated that shares can’t be transferred easily and the written consent will be required by the existing shareholders. In the case of the death of any member, it is not applied, as shares are transferred to the family.

What Are the Things That Are to Be Kept in Mind While Drafting a Shareholder’s Agreement?

1. One must understand the need of the shareholder’s agreement that why it is necessary to maintain or balance the relationship between the shareholder and the company.
2. All the rights and the obligations of both the parties (i.e. shareholder and the company) are listed out clearly,
3. The terms must be precise and not ambiguous because wide interpretations may cause the problems in future,
4. The dispute resolution clause must be clearly defined in the Shareholder’s Agreement, in terms of place, powers, duties, and mode of dispute resolution, etc.
5. The restrictions on the transfer of the shares must be defined clearly.

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